KVH Industries, Inc. (KVHI)
Acquisition of Headland Media Call
May 13, 2013 10:30 AM ET
Peter Rendall – CFO
Martin Kits Van Heyningen – President, CEO and Chairman
Rich Valera – Needham & Company
Jim Mcllree – Dominick & Dominick
Chris Quilty – Raymond James
Greg Weaver – Invicta
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Thank you. Good morning, everyone. I am Peter Rendall. I’m the Chief Financial Officer of KVH Industries, and with me on the phone today is Martin Kits Van Heyningen, Chief Executive Officer of KVH Industries. This call will address the announcement made this morning of KVH Industries acquisition Headland Media Limited. Copies of the press release are available on our website and also from our Investor Relations department.
This call is being simulcast on the internet, and will be archived on our website for future reference. If you are listening via the web, feel free to submit questions to firstname.lastname@example.org and we will answer them following this call.
Certain matters discussed on this call may include forward-looking statements regarding among other things, future operating results, performance or achievements. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those described in the forward-looking statements as a result of various important factors.
Such factors have been set forth in the press release issued this morning, as well as the company’s most recent reports on forms 10-Q and 10-K as filed the SEC. Included on the call will be a discussion of non-GAAP financial measures, specifically EBITDA. These metrics are not meant to replace GAAP measurements, but are provided as supplemental detail to assist the public in their analysis.
Now, at this point I’d like to turn the call over to, Martin, to discussion the acquisition. Martin?
Martin Kits Van Heyningen
Great, thank you all for joining us today. This morning KVH announced another significant milestone in our efforts to bring innovative new services to the maritime market. We acquired Headland Media, the maritime industries leading supplier or licensed news, sports, music and entertainment content.
For those of you who may not be familiar with Headland Media, they are a UK-based company with a 115 employees, in offices in Europe, India, the Philippines and the United States. It’s a licenses and premium content products which include digital newspapers, news, and sports clips, movies from all the major studios, music and safety training films to customers in the maritime industry primarily, and to a lesser extent, in the lodging and retail markets. Their 2012 sales were about US$12.2 million, and 85% of that is recurring revenue that came from customers with subscriptions to their various services.
Headland Media owns many well-known brands in the maritime markets, including news link, digital newspapers, Walport entertainment and training videos, and Headland Media’s own SatNews and Crew Media Player and a Crewtoo, social media website. The licensed commercial music brands include Mezzo [ph] for the retail industry and HipHotels music for the lodging industry. They also market digital newspapers Good Morning News and SatNews for hotels as well.
Headland Media distributes content under limited commercial used licenses. The licenses required by international copyright law for exhibition of content and commercial settings including on-board ship.
Their products are tailored to the unique requirements for their customers, to present all their digital newspaper services are used to create 70 different daily newspapers in 17 different languages. Each variant of the newspaper carries articles of interest to the home countries with their unique group of readers. Headland Media’s customer base currently includes more than 9,600 vessels, 1,700 hotels and about 1,700 retail establishments around the world.
New regulations in maritime labor convention require shipping companies to improve living conditions on-board ships, and access to news and entertainment is one of this suggested improvements. The alternative of crew members bringing their personal DVDs on-board for entertainment violates international copyright law, so it can’t be allowed by reputable shipping companies.
Headland Media offers legally licensed content delivered on a regular basis to ships around the world. The movie content that Headland Media provides typically involves sending very large files that has been far too expensive to transmit using maritime satellite services. As a result, they’ve had to physically ship DVDs to ports around the world coordinating their arrival with vessel schedules which can be difficult, labor intensive exercise for both Headland and their customers.
Using KVH’s planned new multicasting service, on our mini-VSAT Broadband network we’ll be send these large files to any numbers of ships with a single transmission, rather than sending a file individually to each vessel. So the combined KVH-Headland Media service offers shipping companies an easy cost-effective way to deliver legal news, sports and music and movie content to the vessels.
Outside of the marine market, Headland Media also distributes rights approved music for retailers, restaurants, and hotels, and event makings to a radio shows for large retail store chains, one of their big customers in the UK is the in-store radio service, ASDA, which is part of Wal-Mart.
They also use their newspaper creating capabilities to create digital delivered newspapers for hotels with international guest. The hotel and retail businesses demonstrate the breadth of the appeal of their license content, as well as have their ability to format content for particular customer groups, create significant revenue opportunities with relatively modest additional costs.